Inflation rate no mystery to Iranian shoppers
The simple answer is inflation is rocketing. But it doesn’t really answer the question analysts often ask which is: what is the actual inflation rate in Iran? To that there is more than one answer, which often seems the case in the Islamic Republic.
The Central Bank of Iran generally cites two figures. The first is sometimes referred to as the average rate for the consumer price index, which in May hit 19.8 percent. The second is the central bank’s year-on-year rate, which was 25.3 percent in May.
Given a choice, economists tend to prefer the latter rate, because they say it reflects what they call the point-to-point rise in prices. Put simply, what does a kilo of tomatoes cost today compared to the same point a year ago. The government, for its own reasons, tends to prefer the former.
Some economists and analysts question both rates. As indeed will most shoppers if you ask them what they are paying each day in the supermarket or bazaar. The central bank’s explanation for consumers is that they feel prices rise faster because they are focusing on a few select items that are their daily needs, while the basket of goods on which the bank’s figures are based is broader and more representative.
Critics however say the basket itself is skewed. Some say it includes too many items which ordinary Iranians hardly purchase. One independent assessment — based on a basket of goods drawn up by an economist who has closely followed the Iranian market — indicated inflation was running at 32 percent in May. The body behind that independent assessment say it’s higher than the central bank rate, but both are showing the same broad trend — up and fast. Some economists following Iran say even 32 percent may be conservative.
But isn’t this just an academic debate? Maybe not, for the answer could have real implications with Iran now roughly one year away from a presidential election.
President Mahmoud Ahmadinejad came to power in 2005 pledging to spread Iran’s oil wealth more fairly. He promised other things too, but this is the one most Iranians remember. And a common refrain these days, at least if you ask city dwellers, is what he laid on their dinner tables was higher priced food.
The worse inflation gets, say some analysts, the tougher the challenge Ahmadinejad will face if he seeks a second four-year term. (He hasn’t said so yet, but few doubt he will run again.). Ahmadinejad is quick to blame global factors for the price surge (not an unusual line from politicians in a world where commodities prices have surged). He also said price rises are the product of a conspiracy by Iran’s “enemies”, or even just hyped by the media. Come round to the corner shop near my place to buy tomatoes, they’re cheaper there, he once memorably told a grumbling parliament.
Iran is not the only oil producer enjoying a revenue bonanza but also coping with the downsides of a flood of extra cash in the market. Across the Gulf in some oil-rich Arab states, inflation has climbed to double digits.
But Ahmadinejad’s critics say this does not explain the speed at which prices are rising. Instead they blame what they call his profligate spending of Iran’s oil earnings — which topped $70 billion last year. The central bank should raise interest rates, they argue — as indeed the bank has indicated it wants. Ahmadinejad has talked about controlling prices while saying rates should be lowered — an argument some economists find difficult to square with orthodox economic theory.
So higher inflation is surely bad news for the president. Yes, say the analysts, but that’s not the whole story. It never is. Firstly, much may well depend on whether Ahmadinejad retains the support Iran’s top authority, Supreme Leader Ayatollah Ali Khamenei, who has heaped praise on the president even if he has in the past gently chided the government over its economic management. And secondly, Ahmadinejad has splurged much of his cash on provincial areas and villages, which long felt neglected by central government. They may be enjoying the attention and looking forward to more, suggest the analysts.
There’s rarely one answer in Iran but there is always plenty of (higher priced) food for thought.